You received no credit for this question in the previous attempt ogen alloy deve

Question

You received no credit for this question in the previous attempt ogen alloy developed at Sandia National Laboratory is said to have potential uses in electricity- ne w material is expected to have a longer life, and it is believed to have a 40% efficiency rate, which is An indium-gallium-arsenide-nitr generating solar cells. The nearly twice that of standard silicon solar cells. The useful life of a t by using the new solar cells. What rate of return could be realized if an extra investment now of $900,000 would result in extra revenues of $450,000 in year 11, $500,000 in year 12, and amounts increasing by $50,000 per year through year 15? satellite could be extended from 10 to 15 years The rate of return that could be realized was-61 % 1° of 14 Next >

Explanation / Answer

The rate of return would be the rate that will make present value of all extra revenue equal to investment

Investment = $900,000

Extra revenue in year 11 = $450,000

Extra revenue in year 12 = $500,000

Extra revenue in year 13 = $550,000

Extra revenue in year 14 = $600,000

Extra revenue in year 15 = $650,000

The present value = revenue/(1+r)n, where r is rate of return and n is number of years

Therefore, -900,000 = 450,000/(1+r)1 + 500,000/(1+r)2 + 550,000/(1+r)3 + 600,000/(1+r)4 + 650,000/(1+r)5

r is realized rate of return

Solving this equation we get value of r as 8.90%

Therefore, realized rate of return = 8.90%

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